New Zealand GDP misses

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  • New Zealand’s economy grew 0.6% in the final three months of 2017, the same pace as the previous quarter.
  • Per Capita GDP grew 0.7% over the year, the weakest result since 2011.
  • Strength in services production was offset by weakness in primary industries.

New Zealand economic growth fell short of expectations in the final three months of 2017.

According to Statistics New Zealand (StatsNZ), GDP grew 0.6% in the December quarter in seasonally adjusted production-based terms, missing forecasts for a larger increase of 0.7%.

“Growth was widespread across many service industries, with business services, and rental hiring and real estate services providing momentum,” said Gary Dunnet, national accounts senior manager at StatsNZ. “Retail trade and wholesale trade were also key contributors to growth this quarter.”

Source: StatsNZ

Offsetting that strength, StatsNZ said growth was tempered by a 2.4% decline in the nation’s primary sector.

“Hot, dry weather appeared to have a negative impact this quarter on agriculture production, which fell 2.7%,” it said. “Falling milk production was reflected in lower dairy manufacturing and dairy exports.”

The result saw the year-on-year rate accelerate to 2.9%, below the 3.1% expansion expected by economists. Compared to 2016, the economy grew by 2.9%, down from 4% in 2016.

Source: StatsNZ

Reflecting strong population growth, StatsNZ said GDP per capita rose by a far smaller 0.1% over the quarter following a 0.2% increase in Q3.

That left GDP per capita growth over the year at 0.7%, the weakest level since 2011.

On an expenditure basis, GDP grew by 0.4% during the quarter, well below the 0.7% level expected. Growth in the September quarter, previously reported at 0.9%, was revised up to show an increase of 1%.

StatsNZ said household expenditure — the largest part of the New Zealand economy at around 60% — grew by 1.2% over the quarter.

“Households ate out more and spent more on groceries and alcohol. This fuelled increased retail trade activity, with food and beverage services and supermarkets experiencing growth,” it said.

Investment in fixed assets also contributed to growth, rising by 2.1%.

However, those results were partially offset by flat growth in exports and a 3.9% lift in imports.

Source: StatsNZ

While economic growth was impacted during the quarter by temporary weakness in dairy production, Kate Hickie, Economist at Capital Economics, says the risks to growth looking ahead are slanted to the downside.

“With net migration passed its peak and business confidence having remaining low, the recent strength of consumption and business investment won’t be sustained,” she says.

“We expect growth to stay close to 3.0% in 2019, but the clear risk is that the slowdown to 2.5% that we expect in 2019 happens this year.”

Hickie says this may see the Reserve Bank of New Zealand leave interest rates unchanged for far longer than markets currently expect.

“Today’s release support our view that the financial markets are wrong to price in an interest rate hike for late this year,” she says.

“We expect the RBNZ will keep rates at 1.75% until at least the second half of next year.”

The New Zealand dollar has fallen following the release of the report, trading at .7308 against the US dollar, a decline of 0.3%.